Had a baby and received generous check from her great grandparents. Now what?

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retiringwhen
Posts: 1743
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by retiringwhen » Wed Feb 19, 2020 12:25 pm

DIFAR31 wrote:
Wed Feb 19, 2020 12:00 pm
retiringwhen wrote:
Wed Feb 19, 2020 11:56 am
No solution can replace fundamental trust either in living relationships or beyond the grave.
Perhaps, but a least with a custodial/UTMA 529 account, the custodian will not be allowed to change the beneficiary. Trust but verify.
The ability to change the beneficiary is a major benefit. In my case it would have side-stepped many many avoidable problems and in some cases less than optimally employed funds. The trust problem lies with trusting the individual who retains that ability to honor intent. No one plans for a child with major mental health or substance abuse issues, so having flexibility to respond is not usually foreseen, but can be a major help.

In our case, the 529's I created for my 3 sons in the end were all used for education purposes. The son who was not able to leverage those funds, can and has been supported in different ways. The money that was in a UTMA was completely different, when he turned 21, he would have been able to buy enough heroin to kill himself 100 times. He knew about the money because he worked jobs and filed taxes and the income from the UTMA accounts were reported on his tax return. Unless you do illegal things, it is not possible to hide this from a reasonably attentive person. So my father-in-law and I had the unenviable problem of legal spending this money on the child on a tight time frame (less than 2 years). We ended up spending the money on things that were far from optimal, but totally legal.

A UTMA 529 account suffers from the same disadvantage as a brokerage UTMA since the money can be withdrawn by beneficiary at age of majority and used for whatever intent with only potential tax consequences.

If the donor is desires unequivocally that the child/beneficiary receive that money and is willing to give full control at a relatively young age, then the UTMA optimizes that desire.

This exchange has gone too long and way past the OP's questions. I will just say that the decisions are not so cut and dried, trust and agency issues exist all over the place in these situations. One should go in with realistic understanding of trade-offs. There is no one best solution.

BTW, in a larger context, Jeffrey Condon's book, "Beyond the Grave" is very good book to read as he give a series of real-world samples of the desires of individuals and how those desires worked out in the real world.

DIFAR31
Posts: 414
Joined: Mon Jan 01, 2018 5:51 pm

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 12:43 pm

retiringwhen wrote:
Wed Feb 19, 2020 12:25 pm
DIFAR31 wrote:
Wed Feb 19, 2020 12:00 pm
retiringwhen wrote:
Wed Feb 19, 2020 11:56 am
No solution can replace fundamental trust either in living relationships or beyond the grave.
Perhaps, but a least with a custodial/UTMA 529 account, the custodian will not be allowed to change the beneficiary. Trust but verify.
The ability to change the beneficiary is a major benefit. In my case it would have side-stepped many many avoidable problems and in some cases less than optimally employed funds. The trust problem lies with trusting the individual who retains that ability to honor intent. No one plans for a child with major mental health or substance abuse issues, so having flexibility to respond is not usually foreseen, but can be a major help.

In our case, the 529's I created for my 3 sons in the end were all used for education purposes. The son who was not able to leverage those funds, can and has been supported in different ways. The money that was in a UTMA was completely different, when he turned 21, he would have been able to buy enough heroin to kill himself 100 times. He knew about the money because he worked jobs and filed taxes and the income from the UTMA accounts were reported on his tax return. Unless you do illegal things, it is not possible to hide this from a reasonably attentive person. So my father-in-law and I had the unenviable problem of legal spending this money on the child on a tight time frame (less than 2 years). We ended up spending the money on things that were far from optimal, but totally legal.

A UTMA 529 account suffers from the same disadvantage as a brokerage UTMA since the money can be withdrawn by beneficiary at age of majority and used for whatever intent with only potential tax consequences.

If the donor is desires unequivocally that the child/beneficiary receive that money and is willing to give full control at a relatively young age, then the UTMA optimizes that desire.

This exchange has gone too long and way past the OP's questions. I will just say that the decisions are not so cut and dried, trust and agency issues exist all over the place in these situations. One should go in with realistic understanding of trade-offs. There is no one best solution.

BTW, in a larger context, Jeffrey Condon's book, "Beyond the Grave" is very good book to read as he give a series of real-world samples of the desires of individuals and how those desires worked out in the real world.
Of course there are trade-offs. A relative who is not comfortable making an unrestricted gift that an infant will gain control of at the age of majority should not be writing a check made out to the infant. But in the OP's situation as described in this thread, that's what happened. The two options are to either discuss with the relative more restrictive options and void the check in favor of one of those other options, or tender the check as written and treat the funds as legally belonging to the infant, with all the obligations and horrible heroin addict possibilities that entails.

retiringwhen
Posts: 1743
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by retiringwhen » Wed Feb 19, 2020 2:36 pm

DIFAR31 wrote:
Wed Feb 19, 2020 12:43 pm
Of course there are trade-offs. A relative who is not comfortable making an unrestricted gift that an infant will gain control of at the age of majority should not be writing a check made out to the infant. But in the OP's situation as described in this thread, that's what happened. The two options are to either discuss with the relative more restrictive options and void the check in favor of one of those other options, or tender the check as written and treat the funds as legally belonging to the infant, with all the obligations and horrible heroin addict possibilities that entails.
I'll bet a dollar to a donut that the OP's great-grand parents gave no thought to the consequences. A response by the baby's parent may helpful. Here is in an imaginary response (assuming the OP has not yet cashed the check).

Grandpa, thanks so much the gift for baby Jane! It means so much to us that you are interested in her future and have committed financial resources to that future! I am not sure you are aware of the different options available to you in choosing how to give those funds to Jane. There is are gift tax exemption impacts plus long-term control/administration of the funds to consider. [Go on to describe the pros and cons of UTMA Brokerage accounts, 529 Accounts and potentially 529 UTMA accounts...]. Can I discuss with you the best choice for your intentions, before I cash the check?

DIFAR31
Posts: 414
Joined: Mon Jan 01, 2018 5:51 pm

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 2:40 pm

retiringwhen wrote:
Wed Feb 19, 2020 2:36 pm
DIFAR31 wrote:
Wed Feb 19, 2020 12:43 pm
Of course there are trade-offs. A relative who is not comfortable making an unrestricted gift that an infant will gain control of at the age of majority should not be writing a check made out to the infant. But in the OP's situation as described in this thread, that's what happened. The two options are to either discuss with the relative more restrictive options and void the check in favor of one of those other options, or tender the check as written and treat the funds as legally belonging to the infant, with all the obligations and horrible heroin addict possibilities that entails.
I'll bet a dollar to a donut that the OP's great-grand parents gave no thought to the consequences. A response by the baby's parent may helpful. Here is in an imaginary response (assuming the OP has not yet cashed the check).

Grandpa, thanks so much the gift for baby Jane! It means so much to us that you are interested in her future and have committed financial resources to that future! I am not sure you are aware of the different options available to you in choosing how to give those funds to Jane. There is are gift tax exemption impacts plus long-term control/administration of the funds to consider. [Go on to describe the pros and cons of UTMA Brokerage accounts, 529 Accounts and potentially 529 UTMA accounts...]. Can I discuss with you the best choice for your intentions, before I cash the check?
It doesn't have to be complicated. A little bit of new knowledge is better than ignorance that may result in an unintended consequence.

decapod10
Posts: 656
Joined: Thu Dec 28, 2017 6:46 pm

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by decapod10 » Wed Feb 19, 2020 2:58 pm

DIFAR31 wrote:
Wed Feb 19, 2020 2:40 pm
retiringwhen wrote:
Wed Feb 19, 2020 2:36 pm
DIFAR31 wrote:
Wed Feb 19, 2020 12:43 pm
Of course there are trade-offs. A relative who is not comfortable making an unrestricted gift that an infant will gain control of at the age of majority should not be writing a check made out to the infant. But in the OP's situation as described in this thread, that's what happened. The two options are to either discuss with the relative more restrictive options and void the check in favor of one of those other options, or tender the check as written and treat the funds as legally belonging to the infant, with all the obligations and horrible heroin addict possibilities that entails.
I'll bet a dollar to a donut that the OP's great-grand parents gave no thought to the consequences. A response by the baby's parent may helpful. Here is in an imaginary response (assuming the OP has not yet cashed the check).

Grandpa, thanks so much the gift for baby Jane! It means so much to us that you are interested in her future and have committed financial resources to that future! I am not sure you are aware of the different options available to you in choosing how to give those funds to Jane. There is are gift tax exemption impacts plus long-term control/administration of the funds to consider. [Go on to describe the pros and cons of UTMA Brokerage accounts, 529 Accounts and potentially 529 UTMA accounts...]. Can I discuss with you the best choice for your intentions, before I cash the check?
It doesn't have to be complicated. A little bit of new knowledge is better than ignorance that may result in an unintended consequence.
I will say though OP is probably long gone that this thread has given me a lot to think about in terms of legalities and consequences of gifts given to children, which I found useful.

retiringwhen
Posts: 1743
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by retiringwhen » Wed Feb 19, 2020 3:06 pm

decapod10 wrote:
Wed Feb 19, 2020 2:58 pm
DIFAR31 wrote:
Wed Feb 19, 2020 2:40 pm
retiringwhen wrote:
Wed Feb 19, 2020 2:36 pm
DIFAR31 wrote:
Wed Feb 19, 2020 12:43 pm
Of course there are trade-offs. A relative who is not comfortable making an unrestricted gift that an infant will gain control of at the age of majority should not be writing a check made out to the infant. But in the OP's situation as described in this thread, that's what happened. The two options are to either discuss with the relative more restrictive options and void the check in favor of one of those other options, or tender the check as written and treat the funds as legally belonging to the infant, with all the obligations and horrible heroin addict possibilities that entails.
I'll bet a dollar to a donut that the OP's great-grand parents gave no thought to the consequences. A response by the baby's parent may helpful. Here is in an imaginary response (assuming the OP has not yet cashed the check).

Grandpa, thanks so much the gift for baby Jane! It means so much to us that you are interested in her future and have committed financial resources to that future! I am not sure you are aware of the different options available to you in choosing how to give those funds to Jane. There is are gift tax exemption impacts plus long-term control/administration of the funds to consider. [Go on to describe the pros and cons of UTMA Brokerage accounts, 529 Accounts and potentially 529 UTMA accounts...]. Can I discuss with you the best choice for your intentions, before I cash the check?
It doesn't have to be complicated. A little bit of new knowledge is better than ignorance that may result in an unintended consequence.
I will say though OP is probably long gone that this thread has given me a lot to think about in terms of legalities and consequences of gifts given to children, which I found useful.
BTW, embedded in the BH Wiki page reference provided by LadyGeek are two references to Fairmark pages that summarize most of the discussion about UTMAs.
Advantages of Custodial Accounts, June 14, 2018
Problems with Custodial Accounts, July 8, 2016

Topic Author
dentite
Posts: 31
Joined: Sat Dec 08, 2018 8:51 am

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Sat Feb 22, 2020 1:55 pm

jajlrajrf wrote:
Wed Feb 19, 2020 7:09 am
oldfatguy wrote:
Mon Feb 17, 2020 3:56 pm
dentite wrote:
Mon Feb 17, 2020 3:54 pm
I always thought 529s were a no brainer. Why choose utma over that?
A 529 account in your child's name will also be a UTMA account. Any type of account for a minor needs a custodian.
Here's my answer.
(1) @dentite should immediately open a UTMA or UGMA (they differ slightly, I prefer UTMA) account at the bank or broker of their choice. Given the long timeframes, both Vanguard and Fidelity would do fine. Deposit the complete amount of the check into this account.
(2) Optionally, they should ALSO open a UTMA 529, owned by the child, ideally at the same bank or broker. This gives you the flexibility to transfer none, part, or all of this and future gifts to the child, depending on the amount of funding they need.
(3) Optionally optionally you might also choose to open a 529 that is not a UTMA where you can put your own money, not the money gifted to the child. But that's really beyond the scope of this question.

Everyone saying "I would cash the check myself and manage it on behalf of the child without bothering with a UTMA" is not acting in the child's best interests. Suppose you get into a fight with the kid's other parent and have an affair and a messy divorce? Suppose you get hit by a truck? Suppose you get sued for every penny? You've now entangled money that was rightfully your child's with your own. The only right move here is to put the money in a UTMA directly.

Lastly, I find especially weird the attitude of "Well, what if my kid is a dope fiend when they're 22? I should therefore manage all of their money just in case." I mean, if that happens you have my sincere condolences, but that still doesn't make it right to take their money.

Hello, I am still here - it took me awhile to answer due to work and a newborn - wow exhausting. Thank you for all these great answers. This is my favorite answer thus far. I do have some follow up questions and a plan. Also the check was for $10,000 if this helps.

I did research on the UTMA and UGMA. I will set up a UTMA most likely at Vanguard. Should I transfer all the money over to a UTMA 529 immediately?

I was researching the difference between a UTMA 529 and 529. As far as I can tell the difference is the minor will control the UTMA 529 at a given age.

Can I make contributions to the UTMA 529 or must I create a 529? My guess is a 529 I create would be a tax benefit for me. I do want to contribute to my daughters college fund as much as possible as I had the burden of paying my own way through school. What is the best move for yearly contributions for my daughters college future? Lets assume due to my finances my daughter will never get need based financial assistance.

Thanks again for all your great responses.

decapod10
Posts: 656
Joined: Thu Dec 28, 2017 6:46 pm

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by decapod10 » Sat Feb 22, 2020 2:12 pm

dentite wrote:
Sat Feb 22, 2020 1:55 pm
jajlrajrf wrote:
Wed Feb 19, 2020 7:09 am
oldfatguy wrote:
Mon Feb 17, 2020 3:56 pm
dentite wrote:
Mon Feb 17, 2020 3:54 pm
I always thought 529s were a no brainer. Why choose utma over that?
A 529 account in your child's name will also be a UTMA account. Any type of account for a minor needs a custodian.
Here's my answer.
(1) @dentite should immediately open a UTMA or UGMA (they differ slightly, I prefer UTMA) account at the bank or broker of their choice. Given the long timeframes, both Vanguard and Fidelity would do fine. Deposit the complete amount of the check into this account.
(2) Optionally, they should ALSO open a UTMA 529, owned by the child, ideally at the same bank or broker. This gives you the flexibility to transfer none, part, or all of this and future gifts to the child, depending on the amount of funding they need.
(3) Optionally optionally you might also choose to open a 529 that is not a UTMA where you can put your own money, not the money gifted to the child. But that's really beyond the scope of this question.

Everyone saying "I would cash the check myself and manage it on behalf of the child without bothering with a UTMA" is not acting in the child's best interests. Suppose you get into a fight with the kid's other parent and have an affair and a messy divorce? Suppose you get hit by a truck? Suppose you get sued for every penny? You've now entangled money that was rightfully your child's with your own. The only right move here is to put the money in a UTMA directly.

Lastly, I find especially weird the attitude of "Well, what if my kid is a dope fiend when they're 22? I should therefore manage all of their money just in case." I mean, if that happens you have my sincere condolences, but that still doesn't make it right to take their money.

Hello, I am still here - it took me awhile to answer due to work and a newborn - wow exhausting. Thank you for all these great answers. This is my favorite answer thus far. I do have some follow up questions and a plan. Also the check was for $10,000 if this helps.

I did research on the UTMA and UGMA. I will set up a UTMA most likely at Vanguard. Should I transfer all the money over to a UTMA 529 immediately?

I was researching the difference between a UTMA 529 and 529. As far as I can tell the difference is the minor will control the UTMA 529 at a given age.

Can I make contributions to the UTMA 529 or must I create a 529? My guess is a 529 I create would be a tax benefit for me. I do want to contribute to my daughters college fund as much as possible as I had the burden of paying my own way through school. What is the best move for yearly contributions for my daughters college future? Lets assume due to my finances my daughter will never get need based financial assistance.

Thanks again for all your great responses.
The difference between an UTMA 529 and a 529 is that yes the child will gain control of the UTMA 529 at some point. In addition you can change the beneficiary of a regular 529 but the UTMA 529 will always belong to the child. A regular 529 you can move it to someone else, or you can even withdraw the money, pay the penalty and buy yourself a car if you want. You can't do that with an UTMA 529 (though when the child turns 18/21, they could withdraw it with penalty and buy a car, or save it for their future kids, or use it for graduate school, or whatever).

(Edit: because a regular 529 YOU are the owner no matter who the beneficiary is, an UTMA 529 the child is the owner)

You can make additional contributions to the UTMA 529 with your own money, but I would not. If you want to contribute your own money, just open a separate 529 that you control and put money in it. (Edit: with the child as beneficiary).

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